Snap Expected To Report a Losing Quarter

Snap Inc. (SNAP) reports Q1 2021 earnings after Thursday’s closing bell, with analysts looking for a loss of $0.05 per-share on $739.6 million in revenue. If met, earnings-per-share (EPS) will be 38% higher than the same quarter in 2020, when the company also lost money. The stock rose more than 9% in February after beating Q4 2020 top and bottom line estimates and posted an all-time high at 73.59 just three weeks later.

Struggling with Monetization

The messaging app provider fell 25 points into the end of March, bouncing at support in the upper 40s, and is now trading in the upper half of a four-month trading range. However, longer-term relative strength cycles predict the current correction is likely to persist into the third quarter, lowering odds for an immediate breakout.  In the meantime, Snap needs to do a better job keeping users engaged in upgraded features that increase revenue through targeted advertising.

Credit Suisse analyst Stephen Ju reiterated the firm’s ‘Outperform’ rating and $80 price target this morning, noting “if we are to take the management forecast for 50% sustained growth for the next several years at face value, our sensitivity analysis suggests SNAP shares can double over the next 3 years. More near term, we increase our revenue forecast for 1Q21 to +60.3% (from +58%) year-over-year based on positive channel checks”.

Wall Street and Technical Outlook

Wall Street consensus matches Credit Suisse’s upbeat view, with an ‘Overweight’ rating based upon 26 ‘Buy’, 2 ‘Overweight, 10 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $40 to a Street-high $91 while the stock is set to open Tuesday’s session about $16 below the median $76 target. Investors hope this humble placement supports rapid upside after a strong quarterly report, especially if the company posts an unexpected profit.

Snap hit an all-time low in single digits in 2019 and entered an uptrend that mounted 2017 resistance near 30 in October 2020. The stock posted a 306% annual return before topping out in February 2021 and eased into a correction that is generating garden variety selling pressure. This price action should eventually support a trip to new highs but downside could easily reach long-term support in the mid-40s before attracting the buyers needed for another trend advance.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.